Scott Santens

Editor of Basic Income Today

As coronavirus recession threatens, economists recommend cash for people

The White House is preparing to meet with Wall Street executives to discuss measures to protect the economy from the coronavirus outbreak. But Wall Street is low on the list of responses economists say the government should be considering.

High on that list: Giving money directly to people — fast.

“Cash giveaways,” suggested Paul Ashworth, chief U.S. economist at independent research firm Capital Economics as a way to boost consumer spending and spark growth.

“Stimulus payments to households,” said Jay Shambaugh, director at the centrist Hamilton Project, founded by former Clinton Treasury Secretary Robert Rubin.

Why might funneling cash to Americans be the best way to cushion the economy? Because any prolonged downturn fueled by the coronavirus is likely to be caused by something more basic than the financial bubble that led to the post-housing crash slump and recessions: A sharp decline in consumer spending, which accounts for roughly two-thirds of economic activity.

As more people practice the “social distancing” measures that health authorities recommend, they are canceling trips and staying in more, slowing the economy. That means as the number of coronavirus cases grows, its economic effects could escalate quickly.

“We are almost certainly already feeling the economic effects of the COVID-19 slowdown,” Bivens wrote Monday, although the slowdown has yet to show up in economic statistics, which can lag by weeks and months.

To cushion the economy, “You need something that would be targeted at boosting people’s incomes in the near term — tax rebates, basically cash giveaways, that sort of thing,” Ashworth said.

He was less enthusiastic about other reported fixes, such as tax breaks or targeted industry bailouts. Corporate breaks could be helpful if they keep cash-crunched companies from having to file for bankruptcy, “but in North America, we’re nowhere near that at the moment,” he said.

Cold, hard cash

Several economists pointed to the model of George W. Bush’s tax rebates of 2001. That year, as the country was sliding into recession, the administration mailed checks of $300 to $600 to about two-thirds of American families. Those checks were later credited with helping the economy move past the dot-com recession.

Direct payments are preferable to tax cuts or juiced-up unemployment insurance for a number of reasons. Checks “go to everyone, including people that can’t work; come in a lump sum, so they are big enough to matter; and support is [the] same for all, not tilted to high income,” Shambaugh, director of the Hamilton Project, said on Twitter.

Jason Furman, an economic adviser to President Obama, has called on the government to send $1,000 to every individual, and an additional $500 per child. Cash payments could also replace income for those workers who are least likely to have access to paid sick leave: retail, restaurant and transportation workers, many of whom are also at heightened risk of getting sick because of the nature of their jobs.

“If you’re a fast-food worker with no paid sick leave, you can’t do that work remotely and you also won’t be paid if you don’t go to work,” said Rebecca Kolins Givan, an associate professor at the Rutgers University School of Management and Labor Relations.

Gig workers have it even worse. People driving for Uber and Lyft and delivering food for DoorDash and Postmates can expect to be even busier than normal, as consumers turn to such services in a bid to avoid crowds. Being legally classified as independent contractors, they are not entitled to paid sick leave even in states that require it, and are also ineligible for workers’ compensation if they get the virus while on the job, Givan said.

Lyft and Uber have committed publicly to paying drivers who get sick with COVID-19 or who are subject to quarantine, but have not said how much drivers would earn. And the policy is unlikely to help drivers who aren’t sick but who avoid driving as a precautionary measure.

Everyone else is doing it

Other countries affected by the coronavirus are directing money to their citizens to lighten the economic blow. China is speeding up payments of unemployment benefits. France, Japan and Korea are boosting subsidies for workers to stay home to care for children, and France is giving money to people forced to self-quarantine. Hong Kong, among other measures, is offering the equivalent of $1,280 to permanent residents who’ve been affected by the outbreak.

So a check from the federal government wouldn’t be unprecedented. But for a presidential administration that has so far considered only top-down approaches to easing the economic pain, it would be unusual.

“Historically, employers don’t put the well-being of their workers or the society first, unless they’re compelled to do so by regulations or laws,” Givan said. “I don’t think the response will be sufficient if it’s based on the varying degree of goodwill we can see from employers.”